The competition recognises outstanding research in areas which can help the Bank of England understand the behaviour of various policy measures and their effectiveness in promoting financial and economic stability.

Dr Tayler and Dr Zilberman said: “Since the financial crisis much attention has been given to the role of financial regulation and central bank policies, as well as their interaction, in mitigating the adverse impact that the financial sector can have on the wider economy. The term that has been coined to describe the use of financial regulation to stabilize the financial system as a whole is widely referred to nowadays as ‘macroprudential policy’.

“Our paper attempts to tackle, from a theoretical perspective, how such macroprudential regulation, as advocated by the Basel Committee on Banking Supervision, can indeed foster financial and economic stability, and at what costs. Furthermore, we investigate the highly topical question on how such new and relatively unfamiliar regulatory tools interact with more standard monetary policy, such as interest rate setting.

“Our results point to the superiority of financial regulation, in the form of capital requirements, over more familiar monetary policy intervention, especially during periods of financial distress. In particular, we find that the Basel III regulatory accords can achieve the output-inflation stabilization goals of central banks, without the need for aggressive monetary policy intervention.”

The two will be jointly presenting their winning paper in the One Bank Flagship Seminars - a unique seminar series for high-profile speakers- on 21st July 2016.

In a joint statement, they said: “As young researchers in our early career, we are naturally overwhelmed as well as excited by our achievement and our invitation to present in this highly prestigious seminar, where the likes of Lord Adair Turner present as well. It’s an honour for such a prestigious institution as the Bank of England to recognise our work.

“We can use our visit to the Bank to not only disseminate our current research to policymakers, but also to guide our future research agenda to answer the questions that matter at the policy level. Of course, the £5000 award is a nice added bonus.”